European carbon prices ended lower after hitting a one-month high earlier on Wednesday, as a weak auction result and slightly bearish fundamentals weighed.

The Dec-15 EUA futures settled at €8.62, down 3 cents, on modest volume of 10.4 million units traded.

The benchmark contract climbed as high as €8.67 in the first hour of trade, before prices sold off to down to €8.57 following the UK’s fortnightly auction.  The units then recovered somewhat during the rest of an otherwise unremarkable session.

The UK sold 3.123 million spot EUAs for €8.56 each its penultimate auction for 2015. The sale cleared some 5 cents below market and attracted bids worth a total 6.285 million units from 13 bidders.

The 2.01 oversubscription rate was the lowest since the last UK auction two weeks ago.

Governments will sell a further 9 million allowances this month, followed by 32.75 million in December.

Meanwhile, a weaker euro amplified for European utilities a small gain in ARA coal prices.

Combined with slightly weaker German baseload power, they trimmed clean German dark spreads by between 2-7%.

Front-year CERs trading on ICE continued to slide, shedding 3 cents to settle at €0.60, which cut the Dec15-16 spread down to 5 cents from upwards of 10 cents seen earlier this month.

SOCGEN

“The current environment for EU Allowances sees lower price volatility and a slowdown in trade volumes, as well a slightly relenting sentiment,” analysts at French investment bank Societe Generale wrote in a client note emailed late on Tuesday, adding that they have left their price forecasts unchanged.

The analysts expect prices to end the year at €8.80, some 15% above current levels.  The front-year EUAs are then seen rising to €9.00 by the end of next year, climbing steadily to €10.20 by end-2020.

“While the short term may yield cautious progress (our models show that one should not expect major seismic movements, whether up or down), EUA prices should continue increasing overall on the back of the structural reforms for the EU ETS, bringing fundamentals back to the fore,” they added.

“While of course the market is years away from reabsorbing the [current 2 billion+] allowance surplus, variables like utility hedging and auction calendars have started to regain prominence.  Of course, the parallel evolution of electricity, natural gas and thermal coal prices is also a key driver.”

By Mike Szabo – mike@carbon-pulse.com